China's factories bounce back, but recovery may be short-lived

Shanghai | China's huge manufacturing sector made a surprise recovery in March, but officials warn the shift in factory activity back into positive territory may be temporary as the pandemic hurts demand from overseas.

The Chinese government released data on Tuesday which showed factory activity resumed expanding in March. The official Purchasing Manager’s Index (PMI) was 52 for the month, beating economists' forecasts of 45, which would have meant the sector was contracting.

Chinese factories are restarting production as the country emerges from its coronavirus shutdown. AP

The figure compared with a record low of 35.7 for January and February, which was the first official economic data to indicate the magnitude of the damage to China's economy since the outbreak brought the country to a standstill for more than six weeks from late-January.

China’s National Bureau of Statistics said factory production resumed in March as the number of new COVID-19 infections fell to almost zero in China. But while there was an initial uptick in activity as factories raced to fill a backlog of orders, the global spread of the virus meant that trend could reverse.

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In the official explanation accompanying the data, a bureau spokesperson said PMI would have to grow for three months in a row to prove that China's economy was back to normal.

It typically takes more than one month of data to determine a trend change. “We can't judge that China’s economy has stabilised only based on the PMI figure," a spokesperson said.

Government officials also warned the economy faced a new challenge from dwindling orders for goods manufactured in China from overseas buyers as the pandemic shuts down major economies in Europe, the US and elsewhere.

The downbeat comments surprised some economists used to Chinese officials trying to hide bad news.

China’s Ministry of Industry and Information Technology said on Monday that 98.6 per cent of industrial companies had resumed operations and that 89.9 per cent of the country's employees were back at work. It said about 76 per cent of small and medium enterprises had resumed operations.

An official from the ministry said declining overseas and domestic demand meant some Chinese exporters would not survive. "If this problem cannot be resolved in time, those enterprises may face pressure to survive," vice-minister Xin Guobin was quoted as saying in state media.

The Chinese government is trying to stimulate the economy by urging its citizens to go shopping after months cooped up at home. But many households remain wary about the outbreak, while some are struggling financially after not receiving any income for more than six weeks.

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"A full recovery will take much longer, given the deepening slump in foreign demand and the deterioration in the labour market – the employment components of the PMIs rose last month but still point to continued layoffs," Capital Economics senior China economist Julian Evans-Pritchard said.

Schools have not yet reopened in China, but most of its citizens are returning to work despite fears of a second wave of infections from imported cases and from carriers not showing any symptoms.

Authorities reversed a decision last week to reopen cinemas and many tourist attractions without giving an explanation. China on Tuesday reported 48 new cases, all of which were from people returning from overseas.

Non-manufacturing PMI rose from 29.6 to 52.3 in March, with the services and construction sectors rebounding off last month's record lows.

More than 10,000 people poured into the nation's capital on the ninth day of protests over police brutality, but what awaited them was a city that no longer felt as if it was being occupied by its own country's military.